Monopsony and vertical integration

For the last week or so, I've been teaching about the history of vertical and horizontal integration and their many ramifications in the late 19th century. Vertical integration was the new strategy of the period, developed by men such as Andrew Carnegie (iron and steel) and Philip Armour (meatpacking) who strove singlemindedly to drive costs out of the production process (to put it in today's parlance). The way that Wal-Mart, its core business focused on retailing, uses its great market power vis à vis its suppliers (see earlier post) to drive costs out of the supply chain seems like the functional equivalent of vertical integration in this respect.

Which is the "better" strategy--outright control or preponderant market power? There's no universal answer; it depends on the context, says the historian (an economist may answer differently). Carnegie's markets in the late 19th century were sufficiently large and stable that the risks of investing in control of supplies, labor, and distribution facilities were minimal and the reductions in unit costs that could be achieved by controlling all aspects of the process were substantial. Market conditions since the 1960s have become much more volatile for a variety of reasons, so investing in dedicated facilities/capabilities carries a much higher risk that market conditions will shift and render those facilities/capabilities useless. In this context, it makes more sense to retain the flexibility of contract relationships, using market power instead of outright control to force cost reductions.

A cautionary tale

This is the time of the semester when everyone--students and faculty alike--gets a bit stressed and . . . accidents happen.

As I reported about a month ago, my quest for an ultra-ultralight laptop ended happily with a Toshiba R-100, an amazing machine: 2.2 lbs. without powercord or extra battery; about 3 lbs with either of those two. (For household purposes, it's codenamed Sherlock, by the way -- long story.)

Well, this weekend, my husband showered it with chicken soup and it's had some proverbial wires crossed ever since. I don't know exactly what the keyboard is doing since I can't enter my password properly, but it's clearly making a hash of keyboard input. On Toshiba's advice, I removed the battery and let it dry out for 48 hours. Still no recovery. Now it's on its way to the Toshiba Notebook Depot in Louisville, KY, where (we are desperately hoping) the laptop wizards will make it good again for not toooo much money.

So be careful out there! More news to follow.